Consolidation--The Juggernaut Hits the Wall

"The consolidation slowdown is a product of reduced valuation for publicly held companies," states Ron Jensen, chairman, president and CEO of San Francisco-based Kelmscott Communications, in a succinct summation of the problem.

"Public companies valued below roughly five times their cash flow dilute their earnings when they buy a company above their public valuation. Therefore, consolidation stops. There is no way a publicly held company can avoid or reverse the situation. The 'arbitrage' between the cost of purchasing a company and the public valuation drives consolidation.